Used game controversy continues; e-book vendors could stand to learn from Valve (again)

August 26, 2010 | 10:15 am

Video and computer games share a bit of an odd similarity to books and e-books. Like books, they can be an example of intellectual property encapsulated in an object, which can be bought and sold new or used—but like e-books, they can also be delivered purely digitally, and equipped with restrictive DRM.

And as with both, there’s some controversy surrounding the idea of used sales.

While many print book publishers look at the sale of used books and gnash their teeth, they are largely powerless to do anything about them. The First Sale Doctrine states that it’s perfectly legal for people to resell the media they buy, after all. Some publishers might make noises about forcing used book dealers to pay royalties on titles they resell, but it would take an act of Congress to mandate something like that, and it doesn’t look like it’s in the cards.

On the other hand, just as e-book publishers are able to connive their way around the Fair Use doctrine by putting DRM on their titles and making it illegal to break the DRM, video and computer game developers actually can make buying used titles less attractive—at least, titles that have an on-line play component, interoperability with other games, or some other function that the publishers can block.

All they have to do is include a single-use code with each new version of a game that won’t work for someone who buys it used, and in one fell swoop they remove a lot of the value inherent in the price savings on the used game. (Of course, this also blocks pirated versions of the game, but piracy would have happened anyway—it’s the used resale market that they’re squarely aiming at.)

Used Computer Games: Cheat or Helper?

The controversy over used video games has sprung up anew as game developer THQ’s creative director for wrestling games said in an interview that used games “cheat” developers (by way of explaining why THQ’s latest wrestling game includes such a single-use code). As might be expected, this has caused a burst of traffic as Internet commentators on both sides have rushed to make their opinions known.

Penny Arcade and (in covering them) Ars Technica have come down largely on the pro-developer side. (Not too surprising, given that the Penny Arcade duo have had a game developed based on their comic.) They point out that, unlike used books that degrade over time, used computer games are essentially identical to the new one. Also, unlike movies and music, video games have no secondary markets from which to make up revenue shortfalls—the sold game is their only means of making back their production costs and earning a profit.

If there’s a healthy secondary market for products, it reduces the risk for the buyers in the primary market. That is, if they buy the product and don’t like it, they know they’ll be able to resell it and recoup some of their losses. That makes it effectively cheaper for them to buy the primary product, increasing the number of sales.

He notes that it also serves to bring new gamers into a franchise—people who can only afford a cheap used copy of one game might later buy the sequels at full price.

Building Up Steam

Of course, another similarity between e-books and games is that both are moving to pure digital distribution, which basically eliminates the possibility of used sales. Though with computer games, at least, this has its compensations. As I’ve mentioned here before, game publisher and distributor Valve has shown a level of pricing savvy completely alien to most e-book sellers.

It’s not a big surprise, when you think about it—used game stores have to make a profit over what they paid for the physical games, whereas there are effectively no variable production costs (e.g., pressing, packaging, etc.) for digital games. If a $30 game sold for as little as $5 digitally, it still earned money for the developer. It certainly earned a lot more money for them than a $20 used sale did. Though not held through Steam, a name-your-own-price indie digital video game sale earned hundreds of thousands of dollars, to be split between its developers, Child’s Play, and the EFF.

But we certainly don’t see book publishers adopting this pricing strategy for their e-books. Can you imagine if there was a chance any hot new $15 bestseller might go on sale for $3 for a weekend? And websites sprang up devoted to tracking these sales? They say that having a chance of a reward makes people more interested than if there’s a guaranteed reward. What marketing lessons might e-book vendors take from Valve’s popular occasional sales?

While people might want to be able to resell their computer games, an e-tailer like Steam seems to represent the best compromise for people who want to be able to buy computer games cheaply. Sooner or later, just about any game will go on sale, and those who pay attention will scoop up major bargains. No wonder nearly half of all computer games sold in 2009 were digital downloads.

Why can’t e-book vendors have similar sales? Granted, they’d have to get permission from the publishers, but I highly doubt Valve can decide to put anyone’s games but its own on sale on a whim, either.

I suggest that this comparison with games is seriously over stated and following it in search of business models will lead nowhere.

Games are not a simple narrative. They are an (often) infinite numbers of narratives built into one experience. Hence they can be played over and over and over again. A book/novel is a static fixed narrative. A one read (ok maybe three) narrative. The area of online gaming is even more alien to the business model of books.

The 2nd hand market in games certainly allows customers to retrieve part of their original cost and then go and buy more games. That is a huge benefit to the gaming companies and demonstrates how the gaming industry has developed it’s own business model without the need to bring in supportive legislation or additional copyright legislation as the Publishing industry is always whining about

I’m not sure what you mean about sudden price specials Chris. Why is it so impossible to imagine a, eBook special discount being offered over a weekend or on a one day special ?

I for one believe that this is where the regulators need to break up the monopoly and control currently being wielded by the publishers. If a retailer wants to drop a price for a weekend as a loss leader that should be their right – and people who believe it to be so should be writing now to their members of parliament or congressmen.

As a complete aside – and as an iPhone and iPad owner who reads a lot of eBooks with Stanza, I believe there is actually a sure way Publishers could be selling their books with ‘total control’ and without any of the copying and formatting worries. I am actually surprised no one has thought of it. But . . . . I ain’t going to write about it just in case they cop to it

In the book industry, a vast majority of the ebooks sold are from vendors, not the publishers, and many vendors make it a contractual obligation that the publisher NEVER sell their books for less than the vendors. In other words, publishers can’t have huge sales, but the vendors can.

As to never having sales on ebooks, that’s certainly not true. I see vendor sales on books all the time.

I’m not a gamer, but I imagine all those games on sale at Valve are older games. I seriously doubt that anyone will have HALO: REACH on extreme sale right now.

Also, the comparison of “The First Sale Doctrine” and fair use is extremely sloppy. “First Sale Doctrine” allows the sale of the physical container of the book (paper, ink, binding, etc.).

Fair use allows the reprinting or reuse of very small portions of a document in scholarly articles and reviews. Fair use doesn’t allow the reprint or resale as used of an entire ebook.

Let’s take the argument that used sales derisk the customer exposure and, therefore, increase sales of new games.

Suppose this is true. If so, publishers would support used sales, create a ‘certified resale’ product similar to used cars, and publicise ways to buy used or sell old games. Yet few publishers do this. We must conclude either: (a) publishers are incredibly stupid, don’t understand the business they’re in, or simply desire to shoot themselves in the foot; or (b) our premise, that used sales benefits publishers is either wrong or at least a special case. I know a number of people in both the book and game publishing industries. It’s certainly true that their are some non-genius types in both markets but I don’t think they’re dumber than average as a whole.

In the world of paper books, where books go out of print, used bookstores can serve a helpful role in giving us access to out of print titles by favorite authors (how else would I have discovered Piers Anthony’s ‘Jason Striker’ series?) In the world of on-line, used sales are ways of transferring wealth from creators of information to non-creators.

The model I prefer, and the model I’ve adopted at BooksForABuck.com is attractive pricing on no-resale titles (eBooks) and higher pricing on resalable (paper) books. Customers can choose but they can’t have both low prices and high resale value.

I believe your analysis is flawed Rob. You leave out the third alternative reason why publishers in the game industry do not get involved with their 2nd hand reselling, and the winning reason- and that is the simple cost/benefit/margin reason. By allowing the 2nd hand reselling to be done by third parties they avoid the logistical costs and organisational costs as well as the risk. The profit margin from getting involved would be much much smaller than first time sales and their efforts are far better served by investing their resources in that part of the business. The 2nd hand resellers are doing all the work for them.
I respect your choice of business model but it is not likely to last far into the next decade imho.

Fair use allows the reprinting or reuse of very small portions of a document in scholarly articles and reviews. Fair use doesn’t allow the reprint or resale as used of an entire ebook.

Never meant to suggest that it did. I was using the comparison solely on the basis of two consumer rights that were being blocked; I didn’t meant to suggest that the rights were rights to do the same thing. Resale of used e-books is an entirely different issue, that I considered touching on in the article but decided to leave out lest it detract from the main point about used vs. digital sale of games.

(And fair use allows a lot more than the use of very small portions of a work—it allows whatever use is found to pass a four-factor legal test, including such things as space-shifting entire CDs—not “small portions” of same—to one’s MP3 player. But that’s not really relevant here.)

Uh, the game business is more complex than the article makes it out to be.

*New* games don’t have a single fixed price.
Rather it varies with time depending on sales rate and the type of game it is. With some games discounting begins at release while others take months or years to see any discount. Some games make more profit off the Downloadable Content (DLC) add-ons than the original game.

A good example would be the Halo Reach game mentioned above, that is coming in a few weeks.
First of all, Reach is coming in three editions, starting at $60 for the basic game, going to $80 for the (not-so) Limited Edition and $149 for the Legendary edition. (A fourth version will come bundled with a special Reach-themed version of the XBOX console itself.)
Those three editions will sell on the order of 5 million copies by the holidays. The first to vanish from retail will be the legendary edition. Afterwards it will reappear in trickles on eBay as a sealed collectible.
Possibly as early as the holidays but more likely next spring, the game will show up as a free pack-in with the regular XBOX console.
During the holidays, and definitely for Black Friday, a variety of retailers will run sales on the basic and Limited edition; probably at $49, maybe as low as $39.
Early next year, the basic game will be discounted to $40. By the game’s first anniversary, the game will be re-released as a Platinum edition, bundled with some of the added-cost DLC offered during the year, for $30. At this point, the game will also show up for purchase as a straight full-game download from XBOX Live.

A year after that, the basic game will run maybe $20.

Over its full lifetime, the game (if it is as successful as its predecessor Halo 3) will sell about 8 to 10 milion new copies; half sold at launch. And it will *still* be played in serious numbers 5 years from now. There are, in fact Halo gamers that only play the one game for years at a time. Most Halo gamers *never* look to sell or trade-in their game because they never stop playing it.

Now, Halo games are high profile games; an event game. The Harry Potter of console gaming.

Normal games run through the whole launch/discount/bargain-reissue cycle in about 6 months. One of the better games released this spring, ALAN WAKE, is running $40 three months after launch and will likely hit $20 by the holidays. And that is more typical than Halo: Reach. Which is why games are often as heavily promoted as movies; pre-orders and launch window sales are like first-weekend box-office for movies, the key to a profitable product.

The reason game publishers don’t bother with “certified used games” is because there is no need to mess with that kind of logistics; reissues fill the “hole” much more profitably.

And most serious gamers don’t bother to try to sell the games, anyway, because of the replay value they offer. Some of the very best RPGs like MASS EFFECT and FALLOUT3 are going for weeks of entertainment per play-through and can be productively replayed a dozen times or more, each time producing different experiences and results. MASS EFFECT, a very cinematic role playing game exclusive to XBOX allows the player to play as one of six types of characters and tracks a whole list of decisions the player makes along the story. These results are then fed into the sequel to determine the starting condition of the gae world. The outcomes of MASS EFFECT2 will in turn be fed to the final game of this space opera trilogy when it comes out next year. After finishing their first playthrough of MASS EFFECT2 (which is actually a fairly different game from the first) many players turned around and went back to the original game to try a different approach.

Serious gamers simply don’t let go of good games.
Now, bad games…
Walk into any GAMESTOP and you’ll find a lot of mediocre and bad games for sale, used, at prices that are hardly a discount. Because, of course, bad games get bad reviews and get discounted real fast.
The result is it takes years for used games to reach a price low-enough to compete with the discount editions.

The used game business lives off two things: lesser single-player games and unwary/unsupervised teenagers who play a game through and then trade it in for credits towards other used games with no real appreciation of the economics. In reality they recoup very little of the initial investment and would do better if they just waited a couple of months (or even weeks) to buy the game after the launch window is over and discounting begins.

The thing to keep in mind with games is that the typical gamer these days is over 25 and a savvy buyer, not an unsupervised teenager.

The “used-game killer” moves of late are straight money grabs to prevent game *lending* more than reselling. And the companies behind them, EA and Activision are notorious money grubbers run a lot like worst of the BPHs.

The differences between the products and how they are used and sold ensures that there is little or nothing a well-run publisher can learn from the likes of them.

And even Steam has little if anything to teach the likes of O’Reilly or Baen or Smashwords or even Amazon. If book publishers want to look for alternate schemes for monitizing content they’d be best advised to look elsewhere; maybe video. Cause trying to copy the tricks of game publishers will only lead to fiasco.

It’s probably a good idea to be careful when trying to apply lessons from game publishing to books; there are a lot of unsavory activities in the gaming industry that would serve nobody if imported to the ebook space. The attempt itself could be damaging.

Felix I agree with much of what you say in a very good comment. I would however toss in that my son in 18 and he is an avid and high level gamer on PC and Xbox. His five local buddies are also gamers. For the last 5 or 6 years they have recycled many dozens of games where they buy and play for about 3 months and then recycle by trading them in. From a discussion I had with them a few months back they only keep one, maybe two, long term. Even the good games – because they have played-out on them. So, as you say, it’s complicated.